Germany is currently in the driving seat when it comes to innovation - thanks in part to the speed it’s developing new technologies like driverless cars.

In the World Economic Forum’s latest Global Competitiveness Report, Germany came top as the world’s most innovative economy, with a score of 87.5 out of 100 in the Innovation capability pillar - one of the 12 drivers of a country’s productivity.

Image: World Economic Forum/ The Global Competitiveness Report 2018

It outperformed the US, the world’s most competitive economy, which came second for innovation (86.5), with Switzerland in third place (82.1).

According to the new index, the speed at which countries can adopt new ideas, methods and products will give them a competitive edge as the Fourth Industrial Revolution continues apace.

Why is innovation so important?

Image: How the world’s best innovators compare

With traditional pathways to growth and success in flux, it’s no longer enough to rely on cost-cutting and efficiency, according to the Forum’s report.

Instead, those countries which can go from idea generation to the successful commercialization of a product the most quickly, within a fertile ‘innovation ecosystem’ of various factors, will have the greatest productivity.

This innovation ecosystem is measured by five sub-pillars as captured in the above chart: Commercialization, Interaction and diversity, Administrative requirements, Research and development, and Entrepreneurial culture.

But other factors determine a country’s ability to innovate, including ICT adoption, quality of education and intensity of competition.

Image: World Economic Forum/ The Global Competitiveness Report 2018

Innovation capability had the lowest median score across all 12 pillars, at just 36 - showing how most countries are struggling to get all the factors in place.

Generally, high-income economies scored more highly on the key five sub-pillars, showing their innovation ecosystems are more developed.

The two ‘super-innovators’ Germany and the US stood out from other innovators such as Korea and Japan for the ‘softer’ drivers of innovation, coming under the Entrepreneurial culture and Interaction and diversity sub-pillars.

But no economy was a ‘perfect innovator’ and all have further to go to overcome the challenges and harness the opportunities presented by the Fourth Industrial Revolution.

What makes Germany a super innovator?

Germany’s position as the world’s top innovator is due in part to the sheer number of ideas it comes up with - many in the automobile industry, where it’s focusing on digitally-networked mobility, driverless vehicles and electric mobility.

In the Forum’s index, the country that invented the MP3 player and fuel cell ranked 5th for patent applications, with 295.32 per million population.

The index also found that a high degree of buyer sophistication (66.1) meant companies were being constantly challenged to innovate, while innovators benefited from a vibrant business sector to bring innovations to market (81.6, 2nd place).

To achieve this, it spends 2.9% of GDP on research and development (R&D) - in 10th place.

While some governments responded to the global economic crisis by cutting spending on R&D, Germany actually increased funding for small and medium-sized enterprises and e-mobility projects.

In 2016, its Gross Domestic Expenditure on R&D (GERD) was back to pre-crisis levels, at 123 billion in purchasing parity dollars (PPP$), according to the 2018 Global Innovation Index, which ranked Germany 9th.

Image: World Economic Forum

This commitment to R&D means that German carmakers are now shaping the future. In 2017, 2,633 patents were applied for in the area of driverless vehicles, a 14% increase on 2016. Volkswagen, the biggest carmaker in the world, spent 11.6 billion euros on R&D in 2017, placing it 5th in the world for R&D spend behind Amazon in first place with 20.1 billion euros.

In 2017, a total of 128,921 patents were registered with the German Patent and Trade Mark Office (DPMA), the largest in Europe and the fifth largest in the world, and one in three patent applications in Europe came from Germany.

As the DPMA explains: “Protecting innovative companies makes the individual firms – and Germany as a location for industry – more competitive. Consumers also profit from innovative products.”

But none of this innovation would be possible without public and private research institutions. In the Forum’s index, Germany came third for the quality of its research publications and fourth for the quality of its institutions, scoring 100 for each.

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It has more than 1,000 public and publicly funded institutions for science, research and development, almost 600 research and innovation networks and clusters, and 614,000 staff in R&D including 358,000 researchers.

The country’s main goal, as outlined by the Federal Ministry of Education and Research in its High-Tech Strategy, is for science and industry to work together to “move Germany further down the path to becoming the global innovation leader”.